PREDICTING STOCKS PRICE MOVEMENT IN NIGERIA: A MARKOVIAN ANALYSIS

Mustapha Babatunde ASHOGBON; Godson Chukwunwike MESIKE; Uche Amara IBEKWE

Mustapha Babatunde ASHOGBON Department of Banking and Finance, Lagos State University of Science and Technology
Godson Chukwunwike MESIKE Department of Actuarial Science and Insurance, University of Lagos
Uche Amara IBEKWE Department of Actuarial Science and Insurance, University of Lagos, Akoka, Lagos, Nigeria

Keywords: Markov Chain, Transition Matrix, Steady State, Stocks Price Movement, Bank Shares

Abstract

Stock market is an important platform in an economy that supports several key sectors of the economy as the movement of stock prices in the financial market provides a fundamental indicator in determining the strength and altitude of development in an economy.This study examined the use of Markov chain model to predict stock price movement of banks’ stocks with a focus on a deposit money bank (DMB) stock.which is one of highly traded shares in the Nigerian stocks market. The study use daily closing stock prices of deposit money bank between 2010 to 2015. The daily closing stock prices were converted to weekly prices which were used to derive a three- state of increase (Inc), reduction (Redc) and stable(S) states for the application of markovian analysis with the aid of MATLAB software. The model was used to predict the short-run and long-run stock prices of the DMB. The study concluded that the markov chain analysis can be used to determine the steady state of the DMB shares for the period under the three different states. The findings shows that Markov chain technique can be used to estimate stocks’ prices movement which will assist investors, stock brokers and other stakeholders in the capital market in taking optimal decisions which will give confidence to the market and thereby attract more participants; which will lead to further growth of Nigerian stocks market.